In the House of Representatives

The House Financial Services Committee voted 43 to 26 Thursday in favor of a measure sponsored by Ron Paul (R-TX) that would expand Congressional oversight authority vis-a-vis the Federal Reserve.

As the Wall Street Journal rightly noted yesterday in a front page story, this vote was part of a general backlash of "populist anger that Wall Street was bailed out while the public was not." Actually, I think (and hope) that there was more to it than that, but I approve of the backlash, however defined, and so I'm inclined to be happy about this vote.

The problem with central banking isn't the opacity of the bank's operations vis-a-vis politicians or their constituents. The problem with central banking is ... central banking. As an institution, it is inherently misguided. Even if Paul's bill should pass, it will amount to little more than some additional work for the GAO in auditing the Fed. Still, one has to approve of the sentiment.

Greed is not always good, greed does not always work. And the way to limit the dysfunctional consequences of greed is through keeping money real.

Separately, the House this week has amended a bill under consideration designed to reduce the systemic risk that accompanies the failure of large financial institutions. Like, just for instance, Lehman Brothers. The bill at issue is the Financial Stability Improvement Act (FSIA or HR 3996). One of the themes of the bill is the creation of a sort of polluter-pays system for the unwinding of large banks. The cost of the orderly unwind is supposed to fall upon the shareholders and unsecured creditors of the bank, not the taxpayers.

The amendment adopted Wednesday, sponsored by Representatives Miller and Moore (Democrats from North Carolina and Kansas, respectively) is designed to ensure that even the secured creditors of such institutions take a hit. If you follow that link you'll find that this amendment takes up only a page and a half, so it would be easy enough to read through if it were not written in legalistic jargon. The gist of it is that secured creditors of a bank that fails and ends up in receivership will take a haircut, in that in the discretion of the Receiver up to 20% of the secureds claim could be turned into an unsecured claim "as necessary to satisfy any amounts owed to the United States or to the [polluter-pays Fund]."

An intense quarrel has broken out over this amendment in the financial blogosphere. Felix Salmon, for example, weighs in here.